20 May Investing in Real Estate with a Friend? This is What You Don’t See Coming
The Dream Property Investment?
You found the perfect property.
The numbers make sense. The location is solid. The upside is real.
And best of all, you’re not doing it alone. You’re buying it with someone you trust. A friend. Maybe even a sibling or a college roommate turned business partner.
It feels like the start of something great. And it might be… Until it isn’t.
Here’s what most real estate partners don’t see coming:
It’s not the property that sinks the deal. It’s the partnership.
Not the market. Not the interest rates. Not the tenants.
It’s the friend you went into business with.
Or more accurately, it’s the absence of a real plan for how the two of you will operate when, not if, things change.
I’ve seen it too many times working with family businesses, investments and so-called friendly deals. Deals that start with champagne toasts and group texts end in lawsuits, forced sales, and fractured relationships.
And it all could have been prevented.
Here’s what you need to know before you and your partner sign on the dotted line.
#1. Handshake Agreements Are Landmines
“We’ve been friends for 20 years.”
“We trust each other.”
“We’ll just keep it simple—50/50.”
That works… until someone does more. Or contributes more. Or wants more. Suddenly, “simple” turns into “unclear.” And “unclear” turns into expensive.
Without a detailed written agreement, the law fills in the blanks for you. And you won’t like the results. Courts don’t interpret handshakes, text threads, or good intentions.
What to do instead? Put it all in writing. Who owns what. Who does what. Who gets what. And what happens when someone wants out, gets sick, or gets sued. That’s not legal paranoia. It’s business maturity.
#2. Money vs. Time: What’s Fair?
In many partnerships, the partners do not come in with the same financial and life situations. One partner has more financial resources to contribute to the business than the other. One partner may have more time to invest in the business than the other. In these situations, one partner might put in most of the capital, and the other handles the operations, maintenance, or leasing. That’s fair—until it’s not.
What happens when major repairs are needed, and the cash partner pays out of pocket while the other partner can’t? Does that change the ownership split? Should it?
Or when the operations partner wants to be compensated for day-to-day work. Does that come off the top or from profits?So what can you do? Address these issues up front in your agreement. Define how capital contributions, sweat equity, and expenses impact ownership. If you don’t, you’ll end up with tensions that can ruin lifelong relationships. And you may even end up litigating fairness later in court.
#3. The 3 D’s: Death, Divorce, and Disability
No one likes to talk about these. But you know what’s worse?
Being in business with your friend’s ex-spouse. Or their kids. Or their court-appointed guardian.
That’s what happens when a partner dies, divorces, or becomes incapacitated. And your agreement doesn’t say who’s in charge of what happens next.
You didn’t sign up to be in business with someone else’s problems. But without the right clauses in place, that’s exactly where you’ll end up.
Make sure this doesn’t happen to you. Include buy-sell provisions and contingency planning in your agreement. Lock down valuation formulas, ownership transfer rules, and who has the right to buy whom out if life throws a curveball.
#4. Tax Surprises That Cost You More Than You Made
Real estate can be full of tax advantages. Until you get hit with phantom income, lose step-up in basis at death, or make a move that triggers unexpected gain.
Many real estate partners form business entities without understanding how distributions, depreciation, or capital events will affect their individual tax returns. That $50,000 in “profit” you didn’t receive? That’s still taxable.
It’s critical to work with an attorney, CPA, and other advisors who understand how real estate entities are taxed. And how to structure ownership, allocations, and exits so your tax bill doesn’t exceed your profit.
#5. No Exit Plan = Guaranteed Conflict
Every partnership ends. The only question is: will it end smoothly or in flames?
If your agreement doesn’t say how to value the property, who can force a sale, or how to exit gracefully, then the day one of you wants out is the day everything starts falling apart.
You’ll be surprised how fast goodwill disappears when one of you wants to liquidate and the other refuses to sell.
The way to avoid this is to define the exit terms clearly. Spell out how buyouts work, how price is determined, and what rights each of you has. No one likes to talk about the breakup when things are going well, but it’s the best time to make a plan.
Protect the Deal and the Relationship
If you’ve read this far, you already know the truth:
The biggest threat to your real estate success isn’t the market.
It’s the human element. The misunderstanding. The unmet expectation. The unspoken assumption.
You need legal infrastructure that protects your partnership, your property, and your peace of mind.
At Garza Business & Estate Law, we help real estate investors who value their time, their money, and their relationships set up bulletproof partnership structures that anticipate and neutralize the risks that ruin so many deals.
But we’re not for everyone.
We work with a select group of clients each year. Business owners and investors serious about doing things right the first time. If that’s you, apply to work with us here: https://lgarzalaw.com/schedule-online/
Because your friendship deserves better than a courtroom.
And your investment deserves more than a handshake.
